When compared to fiat currencies, crypto assets have an almost inverse relationship with macro-economic factors such as inflation growth, Mr Sumit Gupta, CEO and Co-Founder of CoinDCX told NDTV. ''Considering the fact that crypto-assets like bitcoin (BTC) are digital tokens that can be exchanged between two parties directly with low transaction fees, their value is currently influenced by the increasing adoption rate and burgeoning transaction volumes,'' said Mr Gupta, while discussing the factors that determine the movement of cryptocurrencies.
The comments from the industry leader come at a time when leading cryptocurrencies such as bitcoin and ethereum have witnessed heavy volatility in the last few months, registering hefty losses after China announced a ban on its financial and payment institutions from providing cryptocurrency services.
As the digital currencies struggle to rebound, investors have again drawn concerns over the volatile nature of crypto assets, compared to the predictable nature of traditional currencies.
Traditional currencies usually react to the macro-economic developments and foreign exchange interventions taken by central banks. However, Mr Gupta describes that crypto assets remain largely ''unperturbed'' by the measures with no control exerted by central banks and continue to derive value based on their utility as a safe, secure, and de-regulated financial token.
''Unlike traditional currencies, their supply is predetermined and limited to a certain maximum threshold which is a huge driver for further price discovery due to the increasing demand,'' added the CEO of the country's largest and safest cryptocurrency exchange.
Cryptocurrency's future in India
In developed economies such as the United States, the recent losses suffered by leading cryptocurrencies prompted investors to book profits in stocks and other risk assets, which rallied massively on hopes of an economic recovery.
However, in a country like India, where many people are still not well-versed with investing in risky assets, the future of cryptocurrency in the country may be questioned. ''Indian investors are known to have a long-term approach towards investing and remain committed to promising sectors or asset classes,'' claimed Mr Gupta.
As the government is yet to legalise crypto investing in India, many have concerns over the legal ramifications of investing in cryptocurrencies. ''Concerns related to the taxation policies governing crypto assets once addressed will lead to more clarity and drive further participation from Indian investors in this promising space,'' he added.
Long-term Vs short-term investment approach: What is better for crypto markets?
Given the volatile nature of crypto markets, first-time investors are often hesitant to play with cryptocurrencies. But the CoinDCX leader recommends new investors to take the plunge and research the crypto asset before taking any fresh positions. ''They should exercise due caution considering the recent volatility in prices and would benefit from adopting a long-term investment approach when it comes to crypto assets,'' said Mr Gupta.
He has a piece of special advice for all those taking a short-term investment approach in crypto markets. ''For traders looking to play short-term movements, it is crucial to enter at important support levels and maintain a strict stop loss in proportion to above levels and their risk appetite.''
''Lastly, when we look at the past performance of major crypto assets, it is evident that investors with a longer investment horizon have benefited from multifold returns,'' explained Mr Gupta.
In February 2021, billionaire Elon Musk's electric vehicle company Tesla Inc invested an aggregate of $1.5 billion in bitcoin and said that it would accept the digital currency as payment for cars. This vaulted bitcoin's dizzying rally to breach a historic $50,000 mark, along with a string of other investments from bigger firms resulting in its wider mainstream acceptance.
However, in the next two months, bitcoin slumped on concerns that U.S. President Joe Biden's plan to raise capital gains taxes will curb investment in digital assets, along with a series of tweets from Elon Musk, as well as China's ban. This not just affected the steady run of bitcoin, but also rival currencies such as ether and XRP.